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Alternative Market Briefing

Managed futures role in the institutional portfolio

Thursday, March 29, 2012

Bailey McCann, Opalesque New York:

Commonfund has released a new whitepaper entitled Understanding the Managed Futures Strategy and its Role in an Institutional Policy Portfolio. The authors, from Commonfund’s Hedge Fund Strategies Group, apply quantitative techniques to provide a better understanding of the strategy and the drivers of its returns. They also present historical evidence that supports the diversifying role of CTAs in institutional policy portfolios.

According to BarclayHedge, CTA assets under management as of September 2011 exceed $320bn, larger than any other hedge fund strategy type. CTAs have been gaining popularity with investors - including institutions as they seek out returns during volatile market conditions. Historically, CTAs have been able to deliver diversification and returns that are largely uncorrelated to the broader equity markets.

Report authors note that CTAs are distinct from other strategies because of their data-driven focus, seeking out trends based on observed price behavior. In this vein, CTAs can serve as a means of downside protection and return generation for an institutional portfolio during period of broader market stress.

In the whitepaper, the authors compare asset class weights in endowment portfolios from the 2010 NACUBO-Commonfund Study of Endowments to show ......................

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